Internationally Harmonized Nature of AWS-3 Band Partly Explains Record Bids, Analysts Say

Industry experts said the huge numbers in the auction mean major players, including AT&T, Dish Network, Verizon and T-Mobile, have likely gone big, with smaller players snatching bargains in some markets. The biggest bids have been in major markets, with a New York City license going at $2.8 billion. With 1,614 licenses up for grabs, four other licenses -- two more in NYC, one in Los Angeles and one in Chicago, are going for $1 billion plus. A license covering Washington, D.C., and Baltimore has a provisionally winning bid of just under $1 billion.

Recon Analytics analyst Roger Entner said it's easy to see why the auction has been such a success. Carriers “need spectrum,” and the AWS-3 spectrum is the only LTE band that is harmonized globally, he said. “If you have customers who are travelling internationally and want to use LTE, this is the band you need,” Entner said. “With more than 50 LTE bands besides this one, it’s a madman’s puzzle to figure out which band combination do you want to have in your handsets to have the most geographical coverage, international coverage.” Entner predicted speculators likely have been pushed out to the smallest markets by the level of bidding in the nation’s 50 largest markets.

NAB General Counsel Rick Kaplan, former Wireless Bureau chief, said that the AWS-3 spectrum is internationally harmonized and the long delay since the last major auction are likely factors in the AWS-3 auction’s success. The high bids also may reflect concerns about the TV incentive auction, he said. “We won’t know until the auction is over what drove it,” Kaplan said. “There may be other factors that have to do with sort of game theory and bidding that we won’t know about until we see who wins and who bids.”

Fred Campbell, Center for Boundless Innovation in Technology executive director and a former Wireless Bureau chief, also said that unlike the 600 MHz band spectrum to be offered in the incentive auction, the AWS-3 spectrum is internationally harmonized for LTE. “That makes it ideal for global roaming and could lower the cost of devices by offering the potential for global economies of scale,” he said. The market is also moving toward 20 MHz channels for LTE, offering faster data speeds than 10 MHz channels, he said. “AWS-3 is the first spectrum auctioned by the FCC in many years with enough bandwidth to deploy 20 MHz channels and could be the only band that offers that opportunity in the near-term,” Campbell said. “The set-aside rules adopted by the FCC for the incentive auction make it unlikely that carriers could obtain 20 MHz channels in the 600 MHz band, and the potential for more delay in holding that auction mean that carriers can't rely on it to meet their immediate need for wider LTE channels.”

“Data growth is the primary driver of increasing spectrum values and mobile video will play a key role in continuing those trends,” BTIG analyst Walter Piecyk told us. In a Tuesday note to investors, Piecyk said the auction is essentially over, with bidding rising by only small amounts in recent rounds and bidding activity focused on smaller markets. “The primary investor concern is that Verizon spends over $30 billion to buy the majority of the AWS-3 spectrum, increasing its debt leverage … and delaying its pursuit of Dish’s spectrum,” Piecyk wrote. AT&T could also be a major bidder, but that's less likely based on AT&T’s concerns about its stock price, he said. "A more than $25 billion purchase of spectrum by AT&T could put sustained pressure on the stock."

Few investors believe T-Mobile will bid more than $1.5 billion in the auction, though it could be pursuing markets like Chicago, Phoenix and Washington, D.C., where it needs capacity, Piecyk said. ‘It is no secret that Dish and two affiliated bidding entities are likely active in the AWS-3 auction,” he wrote. “We believe there are benefits to Dish winning paired and uplink-only spectrum licenses but with Dish’s market cap at less than $34 billion and a total auction value approaching $45 billion, it seems odd to suggest that Dish would/could win the majority of spectrum.”

“Ultimately, the reasons for the inflated AWS-3 auction prices while near-concurrent non-auction spectrum transactions at much lower prices, remain unclear,” Goldin Associates Managing Director Armand Musey said Wednesday in a report. “We expect release of auction results next month to shed additional light.” Musey said the totals equate to about $140 for every U.S. wireless subscriber. The high numbers for the AWS-3 auction mean carriers may need extra time to “replenish” their “financial reserves” before that auction, he said. “The two carriers with the deepest pockets, AT&T and Verizon, already possess deep spectrum holdings below 1 GHz,” Musey said. “Substantial bidding by them would likely be based on a desire to foreclose future entrants as opposed to based on their auction use needs.” Musey also theorized Dish may be active in the AWS-3 auction “to increase its capacity and to force T-Mobile or Verizon to the table for a future alliance.”

Other industry observers asked not to be identified since they have advised clients active in the auction. “I think a lot of the premium paid for these licenses is because they are usable sooner than the incentive auction spectrum will be,” said an industry economist. ”This is high-quality spectrum and there hasn’t been a significant auction in a very long time, since the 700 MHz auction,” said a lawyer who represents carriers and other clients. “There’s a little bit of pent up demand. This is spectrum that can be used for increased capacity of networks.”